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Discounters see dollar signs in groceries

The days when getting groceries required a trip to a supermarket dedicated solely to rows of food and a butcher have long been a thing of the past.

But today not only are big box discounters such as Wal-Mart and Target adding food to their regular line up of baby clothes and garden tools, smaller retailers like Dollar General operate grocery businesses or are adding more supermarket-like goods to their shelves.

Dollar General expects to open 40 new grocery stores nationally this year under the company’s Dollar General Market marquee.

Recently online retail giant Amazon announced it would be delivering food in select Los Angeles neighborhoods, the second city in the company’s toe-dip into the grocery business. (Seattle, the company’s home, is the first).

Why so much attention to groceries?

Retailers see groceries as a way to add convenience for hurried and time-strapped Americans who like the idea of getting tires for their car and steaks for a weekend barbecue all in one place, say the chains’ operators and food industry analysts.

“If you can help consumers save money or time or both, those seem to be winning formulas,” said Darren Seifer, food and beverage industry analyst for NPD Group, a New York-based consumer research firm.

The numbers show the trend. Sales at traditional supermarkets grew 4.4 percent in 2011, according to a study by Willard Bishop on the Future of Food Retailing. Non-traditional grocers saw sales jump that year by 5.9 percent.

In fact, Dollar General reported same-store sales grew 2.6 percent in its first quarter partly because of strong consumables business, which includes food and products such as makeup and lotion. Wal-Mart reported that consumables are 55 percent of its business.

That’s not to say there aren’t drawbacks. The grocery business is notoriously volatile because of price swings and supply pressures. Profit margins are generally about 1 percent.

But then, everyone has to eat. Unlike shopping for a pair of shoes or a Blu-ray, consumers purchase food at least two to three times a week, if not more.

“It’s a low-margin business, but with a high volume,” Richard Galanti, a spokesman for warehouse retailer Costco.

It won’t be easy to unseat supermarkets, however. They have larger, more diverse selections of food and employ staff, such as butchers or pastry chefs, who can answer questions for customers, provide specific cuts of meat or fill customized cake orders.

And consumers trust supermarkets more when it comes to fresh products such as meat, vegetables and fruits, the analysts said.

Wal-Mart announced this month that it planned to get produce to its stores a day sooner and with better quality. The company said it would cut out the middle man by purchasing fruits and vegetables directly from growers and do independent weekly checks at stores.

“This gives an extra day of freshness to our customers,” said Danit Marquardt, a Wal-Mart spokeswoman.

Target spokeswoman Jamie Bastian said the chain will remodel almost 100 stores of its traditional stores to include produce and meats, bringing its mini-grocery model to about 1,220 stores. The company has 250 SuperTargets, which offers a full service grocery store.

“We will continue to evaluate and approve store investments one at a time, whether that be a SuperTarget store, general merchandise store or expanded fresh food format store, to determine which format makes the most sense from a business standpoint and community standpoint,” she said.

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